Coalition behaving as if we were in normal economic times

Allister Heath
IT was impossible not to be reminded of Roman history yesterday, as Britain’s politicians argued over the Queen’s speech, fiddling while the economy burnt. Cameron, like a modern version of the ill-fated Roman emperor Nero himself, was busy discussing his plan to set up another five or so quangos, including one to police supermarkets, and to promote a bit more lower carbon energy. Meanwhile, trading screens in the City were bright red, as Eurozone banking stocks collapsed to their lowest levels since early 2009, Spain moved to nationalise a bank, the FTSE 100 was back at levels last seen last year, the euro fell for the eighth day in a row against the greenback and commodities continued to slide.

Rather than tackling the great issues of the day, Westminster was indulging in the narcissism of small differences. There was little in the Queen’s Speech that Ed Miliband, in a different world, or at least Tony Blair circa 2006, could not have put his name to. And yet Labour, Lib Dems and Tories went on arguing, bitterly, viciously and sometimes amusingly over very little, while Spanish banking stocks collapsed, Greece moved another step closer to implosion and the British economy and businesses sighed in disbelief.

Is there anything that will make the coalition take seriously the need to liberate the economy? Anything at all? A worsening of the recession, perhaps (that is likely simply because of the extra bank holiday this quarter)? Or a total meltdown in the Eurozone? When it comes to the economy, this was an ordinary Queen’s speech for extraordinary times.

Most Queen’s speeches aren’t focused on the economy; this one should have been. It was insouciant, almost flippant. There was no emergency supply-side job creation act, no genuine bonfire of red tape, or procedure to allow the private sector to build a new airport. The proposal to reform the House of Lords sent out the wrong message. And even though it is now clear that the proposed Vickers reforms to banking are flawed, and that other reforms would be better, they will be implemented – a move which will probably further choke the supply of credit.

Of course, the devil will be in the detail. It may be that some of the deregulatory moves promised yesterday will make a tangible difference. But it seems rather that the net effect of the new legislation will be to increase, rather than cut, red tape, including even in the labour market. In the meantime, the public is crying out for cheaper energy, not greener energy. The new supermarket quango will only succeed in hiking prices for consumers.

There was some good stuff, of course – it is a scandal that it is so hard to adopt children in this country. Michael Gove is to be commended for tackling this. The one piece of good news is that yields on UK gilts collapsed again, to new record lows; a similar pattern is visible in Germany. The bond bubble may have burst in Greece and Spain – but it continues to inflate in those economies perceived to be safe havens.

This is for three reasons: quantitative easing, which has reduced the supply of gilts available to the private sector; the markets’ belief that the UK is more committed to austerity than most other economies (including now France); and the fact that we remain outside of the shackles of the euro.

But all of this has lulled the coalition into a false sense of security: we are in an economic emergency, not in normal times. The fact that the coalition displayed so little imagination yesterday bodes ill for its long-term survival.